How Detroit factory workers get charged more than lawyers for auto insurance

Study: Factors that have nothing to do with driver safety impact quotes

It costs more for the undereducated working poor or unemployed who rent homes to buy auto insurance in Michigan than homeowners with white collar careers living and driving in the same city.

That's the charge from a new study by a California insurance researcher who has examined the impact on quotes insurers give Michigan motorists based on their job title, level of education and whether they rent or own a home — factors that have nothing to do with whether they're safe drivers.

Los Angeles-based insurance researcher Douglas Heller found that a factory worker in Michigan without a college education who rents a home pays an average of $233 more annually than a highly-educated lawyer who owns a home to cover the same car at the exact address.

Heller's study compared online quotes from six national insurance carriers using a 30-year-old unmarried woman with a perfect driving record and the same 2007 Ford Fusion S that's driven 10,001 miles annually.

The study was paid for by the Coalition Protecting Auto No-Fault, a powerful group of medical providers and attorneys that is battling insurers over reforming Michigan's costly auto insurance.

Heller's study underscores CPAN's long contention that Michigan's unlimited medical coverage for auto accident victims isn't the only factor that forces some Michigan drivers to pay the highest rates in the country.

In Detroit, not surprisingly, the gap between the top and bottom of the economic ladder was the widest in Heller's study. The lawyer would be charged an average $643 less per year than the unemployed Detroiter without a high school diploma — at the same address, driving the same 10-year-old car.

Dyck Van Koevering, general counsel for the Insurance Alliance of Michigan, panned Heller's study as "a distraction" that doesn't propose any solution to taking costs out of the auto insurance system associated with Michigan's unique unlimited medical benefits.

"Companies use rating factors that correlate to loss," Van Koevering said. "If they didn't correlate to loss, they wouldn't use them."

Factoring a driver's education level, job title or home ownership status into what they're charged for auto insurance is legal under Michigan's insurance laws, Van Koevering said. "If a company uses those factors, they have actuarial justification for using them," he said.

The Heller study did not take into account credit scores, a controversial factor that can be used to levy higher insurance premiums on drivers deemed less reliable to pay their monthly bill because of a poor borrowing history.

Insurers can legally pick and choose which nondriving factors to bake into their premium calculations. Heller's study points out that State Farm Mutual Automobile Insurance Co. and Allstate Insurance Co. don't consider a driver's job title or education level in their insurance rates.

This is a result of competition in Michigan's auto insurance market, said Lori Conarton, communications director for Insurance Alliance of Michigan, the auto insurance industry's Lansing-based lobbying group.

"They have that as a business decision — which rating factors they use, what they linked to get to those rating factors — based on their own experience," Conarton said.

It's easy to dismiss Heller's study as a one-time snapshot of insurance quotes that can vary wildly based on the number of paying drivers and auto accident claims in a particular ZIP code — until you try getting similar insurance quotes.

'Socioeconomic surcharges'

I went to Esurance.com and and plugged in Heller's 30-year-old unmarried female under my wife's name and got quotes for the same 2007 Ford Fusion S at my home address in St. Clair Shores and a random address on Woodingham Drive in Detroit's Bagley neighborhood, a stable middle-class enclave.

For my address, the single female with a perfect driving record, a bachelor's degree, no job and Medicaid personal health insurance got a quote of $170 a month. The same female driver without a bachelor's degree was quoted $196 per month.

At the north side Detroit address, Esurance quoted the same female driver with a bachelor's degree and no job $314 per month — an 84 percent increase from my house in St. Clair Shores. The jobless uneducated female driver at the Woodingham Drive address was quoted $473 per month — an increase of 141 percent from her suburban twin in southern Macomb County.

What's more striking is the difference between the two drivers at the same address: a $25 monthly gap at my house in St. Clair Shores and a $160 difference each month at the Detroit address.

"The reality in Detroit is more and more people are suffering these socioeconomic surcharges because more and more people find themselves in these penalized categories, even though they bring no new risk to the insurance company," Heller said in a phone interview. "If you lose your job, you don't become a worse driver. And in fact, you probably drive less because you're not going to work every day."

Heller contends nondriving factors used to set auto insurance rates are pricing working-class, underemployed and unemployed Detroiters out of the traditional market.

But they still have to get to work, take their kids to school and drive long distances across Detroit for groceries and medical care.

And drivers without insurance create added burdens on the rest of the motoring public, through higher rates and unpaid medical costs that get passed through the health care system, Heller said.

Heller, who has spent 20 years studying auto insurance across the country, said he's never seen seven-day auto insurance plans anywhere else.

"What the major insurers have done is effectively turned their back on low-wage workers in Detroit and they've forced people to buy what's little more than desperation policies," Heller said of seven-day insurance plans. "And that's bad for all drivers."

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